Federal Taxation Concepts - Exam 3 - ACCT
3353 UPDATED Exam Questions and
CORRECT Answers
What do we have to capitalize? - CORRECT ANSWER - Assets (not inventory) with
ascertainable lives beyond 1 year (12 months)
(Typically, capitalize the cost
Recover the cost over the asset's respective life)
Capitalized assets do not apply to - CORRECT ANSWER - land. This is because it has no
ascertainable life
Some exceptions to capitalized assets may include - CORRECT ANSWER - Certain
materials, supplies, and repair and maintenance costs may be expensed as paid or incurred
What is a unit of property (UOP) - CORRECT ANSWER - The building and its structural
components
With Capitalized assets, what are some lower cost items that may be expensed (unless they relate
to UOP prior to being placed into service) - CORRECT ANSWER - Materials or supplies that
cost $200 or less
De minims safe harbor election
What must happen for a De Minimis safe harbor election? - CORRECT ANSWER - Have
written procedures in place at the beginning of the tax year that provide for expensing of
amounts below a specified dollar amount or that have a useful life of 12 months or less
Must expense the items in financial accounting records
, Ensures that items costing more than $5,000 per invoice or item are capitalized
(Reduced to $2,500 if the company does not have audited financial statements)
De Minimis safe harbor election is - CORRECT ANSWER - Irrevocable, & can not be made
for inventory of land
Routine maintenance is used to - CORRECT ANSWER - to keep UOPs operating efficiently
may be expensed (unless they occur prior to the UOP being placed into service)
In real property how often should you have routine maintenance - CORRECT ANSWER - At
least twice within 10 years
Betterments must be - CORRECT ANSWER - capitalized unless they meet a lower-cost item
exception
What do Betterments Do? - CORRECT ANSWER - Enlarge or increase the capacity of the
UOP
Materially increases the productivity, efficiency, or quality of the UOP
What is Real property (realty) - CORRECT ANSWER - Includes land and buildings
permanently affixed to the land
What is Personal property (personalty) - CORRECT ANSWER - Any asset that is not real
property
Assets eligible for cost recovery Must - CORRECT ANSWER - be subject to wear and tear,
decay or decline from natural causes, or obsolescence (e.g., buildings, equipment)
3353 UPDATED Exam Questions and
CORRECT Answers
What do we have to capitalize? - CORRECT ANSWER - Assets (not inventory) with
ascertainable lives beyond 1 year (12 months)
(Typically, capitalize the cost
Recover the cost over the asset's respective life)
Capitalized assets do not apply to - CORRECT ANSWER - land. This is because it has no
ascertainable life
Some exceptions to capitalized assets may include - CORRECT ANSWER - Certain
materials, supplies, and repair and maintenance costs may be expensed as paid or incurred
What is a unit of property (UOP) - CORRECT ANSWER - The building and its structural
components
With Capitalized assets, what are some lower cost items that may be expensed (unless they relate
to UOP prior to being placed into service) - CORRECT ANSWER - Materials or supplies that
cost $200 or less
De minims safe harbor election
What must happen for a De Minimis safe harbor election? - CORRECT ANSWER - Have
written procedures in place at the beginning of the tax year that provide for expensing of
amounts below a specified dollar amount or that have a useful life of 12 months or less
Must expense the items in financial accounting records
, Ensures that items costing more than $5,000 per invoice or item are capitalized
(Reduced to $2,500 if the company does not have audited financial statements)
De Minimis safe harbor election is - CORRECT ANSWER - Irrevocable, & can not be made
for inventory of land
Routine maintenance is used to - CORRECT ANSWER - to keep UOPs operating efficiently
may be expensed (unless they occur prior to the UOP being placed into service)
In real property how often should you have routine maintenance - CORRECT ANSWER - At
least twice within 10 years
Betterments must be - CORRECT ANSWER - capitalized unless they meet a lower-cost item
exception
What do Betterments Do? - CORRECT ANSWER - Enlarge or increase the capacity of the
UOP
Materially increases the productivity, efficiency, or quality of the UOP
What is Real property (realty) - CORRECT ANSWER - Includes land and buildings
permanently affixed to the land
What is Personal property (personalty) - CORRECT ANSWER - Any asset that is not real
property
Assets eligible for cost recovery Must - CORRECT ANSWER - be subject to wear and tear,
decay or decline from natural causes, or obsolescence (e.g., buildings, equipment)
